What Happens if the Debt Limit Isn't Increased? Nothing Good

The reality deniers in the Republican Party- i.e., the same people who get their news from Fox News and think Michele Bachmann is brilliant -  are now trying to argue that there will be no serious consequences if America's debt limit is not increased and the nation defaults on its debts.  Yes, it is lunacy, but that is what passes as intelligent thought in today's GOP where mental illness or a lobotomy are increasingly prerequisites for party membership.  Nobel Prize winning columnist Paul Krugman has a piece in the New York Times that looks at what the REAL consequences would be as opposed to the opinions issuing from the GOP fantasy world.  Here are column highlights:

So what are the choices if we do hit the ceiling? As you might guess, they’re all bad, so the question is which bad choice would do the least harm. . . . . What would a general default look like?

A report last year from the Treasury Department suggested that hitting the debt ceiling would lead to a “delayed payment regime”: bills, including bills for interest due on federal debt, would be paid in the order received, as cash became available. Since the bills coming in each day would exceed cash receipts, this would mean falling further and further behind. And this could create an immediate financial crisis, because U.S. debt — heretofore considered the ultimate safe asset — would be reclassified as an asset in default, possibly forcing financial institutions to sell off their U.S. bonds and seek other forms of collateral. 

[M]any people — especially, but not only, Republican-leaning economists — have suggested that the Treasury Department could instead “prioritize”: It could pay off bonds in full, so that the whole burden of the cash shortage fell on other things. And by “other things,” we largely mean Social Security, Medicare, and Medicaid, which account for the majority of federal spending other than defense and interest. 

Some advocates of prioritization seem to believe that everything will be O.K. as long as we keep making our interest payments. Let me give four reasons they’re wrong. 

First, the U.S. government would still be going into default, failing to meet its legal obligations to pay.

Second, prioritizing interest payments would reinforce the terrible precedent we set after the 2008 crisis, when Wall Street was bailed out but distressed workers and homeowners got little or nothing. We would, once again, be signaling that the financial industry gets special treatment because it can threaten to shut down the economy if it doesn’t. 

Third, the spending cuts would create great hardship if they go on for any length of time. Think Medicare recipients turned away from hospitals because the government isn’t paying claims. 

Finally, while prioritizing might avoid an immediate financial crisis, it would still have devastating economic effects. We’d be looking at an immediate spending cut roughly comparable to the plunge in housing investment after the bubble burst, a plunge that was the most important cause of the Great Recession of 2007-9. That by itself would surely be enough to push us into recession.

And it wouldn’t end there. As the U.S. economy went into recession, tax receipts would fall sharply, and the government, unable to borrow, would be forced into a second round of spending cuts, . . . . we could still be looking at a slump worse than the Great Recession. 

Many legal experts think there is another option: One way or another, the president could simply choose to defy Congress and ignore the debt ceiling. 

Wouldn’t this be breaking the law? Maybe, maybe not — opinions differ. But not making good on federal obligations is also breaking the law. And if House Republicans are pushing the president into a situation where he must break the law no matter what he does, why not choose the version that hurts America least? 

There would, of course, be an uproar, and probably many legal challenges — although if I were a Republican, I’d worry about, in effect, filing suit to stop the government from paying seniors’ hospital bills. Still, as I said, there are no good choices here.

How did the GOP become so insane?  The Christofascists.  These people live truly in a mythical fantasy world and deny objective reality, reject knowledge and science, etc. And now they control the base of the GOP.  Barry Goldwater was right: